The ACA lookback measurement method is one way to determine who your full-time employees are for the purposes of ACA compliance. It's not always as simple as it may seem to determine who your full-time employees are, but the method can help to determine who needs an offer of health insurance.
When it comes to the Affordable Care Act (ACA), one question that comes to mind is "Who is all the fuss about?" (The answer, while seemingly simple, may not be as straightforward as you think.) Full-time employees is the quick answer. But what is the definition of a full-time employee? The ACA lookback measurement method is a "measurement" tool and one of the ways to answer that question with the goal of maintaining compliance.
What is the ACA lookback measurement method?
This measurement method is one of two methods that employers can use to determine full-time employees as defined by the ACA and, therefore, should be offered health insurance coverage. Under this method, officially known as the ACA lookback measurement method, an employee's hours of service are tracked and measured during a predefined period to calculate the average hours they worked per week during that time frame. The predefined period is known as the "measurement period" or ACA lookback period. If the employee's average hours per week are 30 or higher, that employee is considered full-time for purposes of the ACA (regardless of HR full- or part-time status). The "earned status" that is determined from the ACA lookback measurement method is then valid for the duration of a corresponding "stability period."
What is the difference between the initial measurement period and standard (ongoing) measurement period?
The initial measurement period is used to determine if new-hires who might work a variable schedule are full-time employees. Once employees complete their initial measurement period, they will transition to being measured each year in the standard (ongoing) measurement period with the remainder of the tenured employee population. In order to keep the process as simple as possible, most employers measure all of their tenured employees during the same standard measurement period each year.
Should an employer still measure a newly hired employee's hours if it's expected that they will work over 30 hours per week?
If employers don't need to determine if an employee is full-time after hiring them, the rules of applying the ACA lookback measurement method are a little different. For new hires who are reasonably expected to work 30 hours per week when hired, an offer of health insurance coverage should be made by the first day of the fourth full month of employment. The period before the offer of coverage must be made is known as the "limited non-assessment period," appropriately named since the IRS will not assess a penalty during this time if a timely offer of coverage is made on or before the end of that period. While there is no initial measurement period for employees in this scenario, they should still be measured each year during the standard measurement period.
What are the benefits for employers using the ACA lookback measurement method of determining eligibility?
- Proactive tool. Using the ACA lookback measurement method gives employers a practical method to be proactive in their approach when seeking to make compliant offers of health insurance coverage, along with completing accurate reporting to the IRS.
- Math-based approach. Since the ACA defines full-time employees as those who complete a "measurement period" working an average of 30 hours per week, this gives employers a way to mathematically determine who should receive offers of health insurance coverage.
- Timeliness. After employees are determined to be full-time during an ACA lookback period, employers can use a period up to 90 days, known as the administrative period, to review their employees in order to accurately and timely make offers of health insurance coverage.
- Reporting accuracy. Since reporting accuracy is something that is monitored by the IRS and penalties may be assessed for failure to timely and accurately report, it is at the top of every employer's mind. Using the ACA lookback measurement method is another way that employers can ensure a greater level of accuracy when completing the IRS Forms 1095C.
What happens if an employer decides to remove an employee's health insurance coverage during a stability period?
Removing health insurance coverage during the stability period from employees who were determined to be full-time would result in potential penalty risk to the employer for not fulfilling the requirements of the ACA employer mandate.
Will the IRS assess an employer penalty if health insurance coverage is removed from an employee who switches from a full-time position to a part-time position?
Keep in mind that organizations may have full- or part-time positions that might not necessarily align with the ACA definition of full-time. Since it is possible to have an employee who was determined to be full-time and who then switched to a part-time position, then it is possible to have an employee in a part-time position who is still eligible for health insurance coverage. The IRS may assess a penalty for a full-time employee who did not receive the offer of coverage for the entire stability period.
So now that you have a basic understanding of using the ACA lookback measurement method, you are empowered within your organization to improve your ACA strategy. As you can see, this is just one of many complexities involved in navigating the ACA. Do you have the time to dedicate to all the potential components within ACA compliance? Who are your trusted experts? Do you have a way to get insight as it relates to ACA compliance? Have you thought about working with a partner to help you take a proactive approach to penalty avoidance?
See how much you could pay in ACA penalties in this custom Employee Potential Penalties Impact Report.